The income sector has been hit hard of late due to rising bond yields and the increased risk premium for holding an income stock. Some income stocks have held up quite well because they are also growing – and many of these are concentrated in energy. And if the bubble still bothers you, instead of owning the stocks, sell puts. And if you do buy them, sell calls.
Selling a put every week or month on an income stock can generate 18% to 35% a year return on a stock that never goes up. Selling a call can double or triple your dividend yield. The key is to find the right names – names you are willing to own if the shares are put to you.
This is how it is done by my subscribers in Options Income Blueprint and they have avoided the income bubble. The key is finding great companies with growth – making them growth and income stocks.
Best bets in natural gas liquids
Here are two stocks I like right now due to something called NGL or natural gas liquids. NGL is liquid stuff that either flows, pretty much on its own, out of a shale field or is mixed with natural gas and is pulled out by companies known as natural gas processors.
There are two ways to play NGL. In the Gulf, where more and more fracked natural gas from Texas and other parts of the Southwest ends up, sits Martin Midstream Partners (MMLP). Martin Midstream cleans up gas, stores it, transports it. The messier that gas is — fracked natural gas can be quite messy — the more business for MMLP. And there is a lot to clean up. A couple of years back it started a sulfur business based on all the sulfur it was pulling out of natural gas. The better part of Martin’s business is volume-dependent, not price-dependent, making it removed from the natural gas price cycle. As more and more gas — and natural gas liquids — go through new pipelines and to the Gulf, the more business for MMLP. It’s a growth company and a growth stock — yielding 7.2%. If you owned it and sold calls against it, that 7.2% could get to be a bit above 20%.
The other company I like very much is another outfit Wall Street rarely talks about: Suburban Propane (SPH). You can guess what it does: distribute propane, an NGL, all over the U.S. with a lot of its business on the east coast. In Pennsylvania, the Marcellus shale is yielding some of the finest NGL in the world, so much so the Carlyle Group (CG) is investing in a refinery outside of Philadelphia to process it and sell it to companies like Suburban Propane. This will reduce costs, stabilize supplies and give SPH better pricing that will enable it to reach into larger markets looking to use propane to reduce energy costs and pollutions, such as commercial laundries.
SPH is a growth company and a growth stock yielding 7.3%. And what holds true for MMLP holds true for SPH: write calls on a regular basis and you could triple that yield.